UA Affordability

The Challenge of College Affordability: University of Alaska is a bargain in shaping the futureUA Affordability

“A journey of a thousand miles must begin with a single step.”

----- Chinese proverb

The canvas is epic. Over the last decade, student debt in America has skyrocketed to more than $1 trillion (per the Consumer Finance Protection Bureau) which will lead to a total lifetime wealth loss of $4 trillion for indebted households without accounting for the impact of defaults. The average student debt is circa $26,600 (the average University of Alaska student debt is circa $24,000). Roughly $864 billion is outstanding federal student loan debt while the remaining $150 billion is in private student loan. According to the Chronicle of HigherEducation, of the approximately 20 million Americans who attend college each year almost 60% borrow annually to help cover costs; and there are circa 37 million student loan borrowers with outstanding student loans today. The cost of a college education is increasing two to three times the overall rate of inflation per the U.S. Bureau of Labor Statistics. The average cost of a baccalaureate degree at a public university went up 46% in real dollars from 2000 to 2010. In 2012, the national average for state appropriation per student was $5,906, and the share of revenues that comes from tuition at public institutions was 47%. The Center for the Study of Education Policy estimates that in 2012-13 the average tuition and fees at four-year public universities was $8,655, and that states spent $71.9 billion on higher education. 27.6% of the U.S. population have a college or advanced degree.

That begs the question: is a college education worth it?

The answer is an unequivocal “yes”.

Apart from the quest for knowledge, a force for enormous social good, and producing more informed citizens, the reason is more mundane or pedestrian: according to the U.S. Bureau of Labor Statistics, college graduates earn 74% more over their lifetimes than high school graduates, and two-thirds of all new jobs now require some type of postsecondary degree. Another compelling statistic is provided by a recent Brookings Institution study that estimated the investment return on a four-year college degree at 15.2% a year which is double the average stock market return. So, the challenge is that as a college degree becomes more important for a student, the cost, unfortunately, has shifted inordinately to students themselves, a majority of whom pay for their higher education with loans. Students make an investment in higher education because they want a better chance to land higher earnings and career. It needs to be remembered, based on data from College Measures, that graduates with the same major but from different universities can take home significantly different earnings as do graduates from the same school who have chosen different majors.

Much like the complexities of controlling health care costs, controlling higher education costs is complex. Questions of quality, performance, and relevance have to be addressed in addition to costs and access. Often times local community colleges offer the best educational value. From there a student can transfer to a local university to finish their baccalaureate degree, thereby cutting the cost of a degree almost in half with no room-and-board expenses if they live at home.

To address this rising cost in higher education, many universities across the nation are freezing tuition or approving the smallest tuition increases in years. The University of Michigan 1.1% increase; Ball State University 2%; Indiana University 1.75%; University of Vermont 2.9%; University of South Carolina 3.5%; Washington State University 2%; University of Washington and Central Washington University a freeze; North Carolina’s 16 public universities including UNC Chapel Hill a freeze; Purdue University a freeze; South Dakota’s six public universities a freeze; public universities in Massachusetts a freeze.

So, the question that naturally arises for Alaska is where does the University of Alaska stand?

At the University of Alaska, three dominant themes are guiding discussions on tuition setting: student achievement; revenues; and student access and affordability. Affordability is a basic component of any tuition discussion. The University of Alaska has a notable low cost in terms of tuition. The tuition increase for 2013-14 at the University of Alaska System was 2%, the lowest in a decade. Keeping a high quality UA education affordable is an important component of students’ success. Besides keeping tuition low though productivity gains, UA makes available financial aid and scholarships. Examples of what students receive include: federal work-study programs ($5.1M); need-based financial aid ($31M); tuition waivers; UA-funded UA Scholars program; and the UA College Savings Program (a tax-advantaged way families can invest and save their own money for their children’s future)(I wrote about this program in August in the AlaskaBusiness Monthly and which was re-printed in Juneau and Fairbanks newspapers). The State of Alaska offers the Alaska Performance Scholarship and the Alaska Education Grant. Then there are several federal government programs such as Pell grants, the American Opportunity Tax credit, etc. (the federal government distributes $150 billion in annual student aid nationwide) as well to complement state and local aid.

At the University of Alaska, the average student full-time equivalent (FTE) in FY11 was billed an estimated $5,900 in tuition and fees for the year, offset by an average $2,300 in non-loan aid and $3,920 in loans for the year. Thus, the total average tuition and fees charged to an “average” student FTE in FY11, net of non-loans aid was $3,600. This is remarkable, indeed, against the canvas of what universities in the rest of the nation charged their students.

UA’s baccalaureate tuition is low in comparison to the 15 member Western Interstate Commission on Higher Education (WICHE):

In comparison to WICHE members, our two-year program ranks on the high side because we are being compared to state community colleges that are significantly subsidized by local governments (such support does not exist to the same extent in Alaska). Note that the University of Alaska has both the university and the community college missions which is unique in the nation.

In the end, the circular journeys bring us right back to where we started about Alaska college affordability. Forget comparing us with the roar of New York, the rattle of Wall Street, the hum of Chicago, even the tranquil prosperity of California. Goethe’s Mephistopheles observes cynically in the second part of Faust that “in the end we are all dependent on monsters of our own creation.” After all, at the end of the day, universities are in the business of ideas. We are wedded to the notion that when a student succeeds, we all benefit from it. A university education remains the escalator up to a better life. With the great migration of human population to cities (84% of the U.S. population lives in cities accounting for 90% of GDP), it is ontologically imperative to provide quality university education at an affordable cost to prepare students to be competitive. UA has been working very hard and has been forward-looking in the area of college affordability for Alaskans.

Dr. Ashok K. Roy is Vice President for Finance & Administration/ CFO at the University System of Alaska, and Associate Professor of Business Administration at UAF. Dr. Roy has over 73 professional publications in academic and trade journals, and holds six university degrees and five professional certifications.